the wage structure of latino-origin groups across generations

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, Vol. 45, No. 2 (April 2006). © 2006 Regents of the University of California Published by Blackwell Publishing, Inc., 350 Main Street, Malden, MA 02148, USA, and 9600 Garsington

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Blackwell Publishing LtdOxford, UKIRELIndustrial Relations0019-8676© 2006 Regents of the University of CaliforniaApril 2006452Original ArticleThe Wage Structure of Latino-Origin Groups across Generations

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The Wage Structure of Latino-Origin Groups across Generations

RICHARD FRY and B. LINDSAY LOWELL*

We analyzed in detail the wages of Latinos of Mexican origin, Central/SouthAmericans, and Puerto Ricans. The wage structure facing second and third- andhigher-generation Latinos is very similar to the wage structure of third- andhigher-generation White workers. Unlike African American workers, more thanhalf of the native Latino/White wage gap can be accounted for by the lowereducational attainment and potential experience of native Latino workers.

Introduction

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; and minority workers often earn less than Whiteworkers. Policy makers are typically faced with two, often reinforcing, waysof achieving equitable wage outcomes—by assisting minorities reach educa-tional parity, or by legislating equal employment opportunities. The balanceof historical evidence on African Americans suggests that even though thereremains a need for better education, they often face inequitable wage out-comes. For Latinos, as of the year 2000, the evidence is incomplete. Andthere are additional questions for Latinos tied up with differences by Latinoorigins and the degree of progress in the immigrant generation and beyond.

This research provides a detailed analysis of the wage structure facing Latinomale workers and compares it with the male non-Hispanic Black and Whitewage structures. The analysis recognizes the diversity among Latino workersalong generational and ethnic origin lines. It asks if wage gaps betweenminorities and White workers are primarily due to compositional differences

* Richard Fry is affiliated with the Pew Hispanic Center 1615 L Street, N.W., Suite 700 Washington,D.C. 20036; B. Lindsay Lowell is affiliated with the Institute for the Study of International MigrationGeorgetown University, Box 579400 Washington, D.C. 20057. E-mail:

[email protected]

. We wouldlike to acknowledge comments on an earlier version of this paper by Alberto Davila, Charles Keely,Roberto Suro, and participants in the “Immigrants, Race, and Generations in the U.S. Labor Market”session at the 2003 American Economics Association meetings. The remarks of two anonymous reviewerssubstantively improved the analysis. The views expressed in this paper are those of the authors and donot necessarily reflect those of the Pew Hispanic Center or The Pew Charitable Trusts.

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between groups in terms of the amounts of skills they have, or if there aredifferences in wages due to differences in the amount that similarly skilledworkers are paid.

Additionally, this research makes critical distinctions between Latino-origingroups by generation. Most research focuses on Mexicans and ignores theother 40 percent of Latinos who have notably different labor marketexperiences. The data permit us to consider Mexicans, Puerto Ricans, andCentral/South Americans. Another obvious distinction is that of foreign-versus native-born Latinos for whom generational advancement is the keyconcern. Immigrants tend to be educated abroad, but natives are U.S. educatedand all their labor market experience is gained in the United States.

In fact, the younger immigrants are when first exposed to the UnitedStates, the better they may fare. The literature on this observation raisesinteresting questions about school and labor market performance, especiallyfor early childhood arrivals compared with teen arrivals. Immigrantsexposed to the United States from early childhood have many of the sameadvantages as their second-generation counterparts. In fact, there is litera-ture that claims that they have unique educational advantages over thesecond generation having to do, primarily, with the optimism and workethic typical of economic immigrants. This research tests whether or notthat optimistic possibility carries over into the children’s labor market out-comes. In this respect, this paper explores earnings outcomes across severalgenerations of Latinos.

Wages and Education, Origin, Generation, and Age at Arrival

Quantity of, and Returns to, Education.

Latino workers are among themost poorly paid workers. Latino men earn wages that are about 60 percentof the wages earned by Whites and 90 percent of those earned by AfricanAmericans (Reimers 2000). Low average Hispanic wages are in part due tothe particularly low wages earned by Latino immigrants. The fact remains,however, that native-born Latino wages are still much closer to those ofAfrican Americans than they are to non-Hispanic Whites.

Given the centrality of education to wage outcomes, Latino labor marketprogress would seem to hinge on educational progress. Most research onwages points out that Latinos are poorly educated. Latino immigrantsaverage 3 years less education than Whites. But even native-born Latinoshave 1.3 years less schooling than Whites and 0.2 years less schooling thanBlacks (Smith 2001). Despite some improvement in recent decades, findingsfrom eighth graders in 1988 shows lags in high school completion for


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Latinos (85 percent) compared with Blacks (90 percent) 12 years aftereighth grade (NCES, 2002). Even Latino postsecondary education lags thatof African American by similar percentages.

But can educational improvement ameliorate wage gaps? Black educationalimprovement has raised the lot of Black workers, but it has not producedwage parity as measured with most data including those analyzed here.Sizable wage gaps between Whites and Blacks persist within educationgroups (Smith and Welch 1989). The male Black–White wage gap amongboth high school graduates and college graduates is relatively large and notmuch different today than in the early 1960s (Smith 2001). The Black expe-rience should perhaps make us wary. Earnings reflect both the price ofskills, as well as the quantity of skills. Even if Latinos could equalize thequantity of skills that they bring to the labor market, differences in the wagestructure, the returns to skills, might persist.

Latino Origin and Generational Progress.

Much of the available researchanalyzes a single lump of Latinos, making no distinction by origin group orgeneration. Certainly, detailed analyses of Mexican-origin workers cannotbe generalized to all Latinos (Verdugo and Verdugo 1984; Trejo 1997;Padilla and Glick 2000; Grogger and Trejo 2002). Mexicans are estimatedto be 58.5 percent of Hispanics, but they tend to have the least educationand the lowest average wages of all Latinos. Furthermore, Latino-origingroups vary by where they live and by their legal status. We analyze thewages for Latinos of Mexican origin and Puerto Ricans and Central/SouthAmericans.

Generational differences are equally stark. Over 55 percent of the Latinolabor force is foreign born with less education and lower earnings thannatives. The wages of Latino immigrants have been intensely scrutinizedover the past 20 years—but it is not the purpose here to document thenature of wage growth experienced by immigrants (see Borjas 1995;Schoeni, McCarthy, and Vernez 1996). Rather, the goal here is to analyzethe extent of labor market success across Latino generations. Researchestablishes that immigrants earn more with U.S. experience, but does thissimple rubric hold across generational groups whose entire experience ismore or less in the United States? Among Mexicans, for example, wageimprovement appears to stall after the second generation (Grogger andTrejo 2002).

Near-Native Immigrant Generations.

Along these lines, there is reason toanticipate that immigrants who arrive in the United States as children expe-rience labor market outcomes that may be “near native.” The issue here is

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whether or not distinct “age-at-arrival generations” can be identified. Forexample, Friedberg (1991) demonstrated that immigrant earnings areinversely related to a continuously measured age at arrival. That is to say,same-age adult immigrants will earn different amounts with early arrivalsearning a premium for each year of earlier arrival. There seems to be advan-tages of longer U.S. experience, language acquisition, U.S. education, andexposure to U.S. working culture that are conferred on child arrivals.

Indeed, research on educational outcomes finds that child arrivals per-form as well as, if not better than, their native-born peers. The educationresearch follows outcomes during childhood and adolescence, finding thatoutcomes for child immigrants are so similar to native-born children thatthe child immigrants are referred to as “near-native” generations. Keyresearch has used the National Education Longitudinal Survey (NELS)that began with a nationally representative sample of eighth graders in1988. All of the immigrants in the NELS arrived in the United States dur-ing childhood and before age 15. Among Hispanic eighth graders, there areno significant generational differences in the probability of dropping out ofhigh school (NCES 1998; Driscoll 1999). Kao (1999) found that there arefew differences in the test scores and grades between the first-generation(childhood arrivals) and native-born-generation Hispanic eighth graders.There are no generational differences among Latino eighth graders in entryinto postsecondary education (NCES 1998).

But how well do these childhood arrivals actually do in the labor market?Friedberg’s (1991) research suggested that they experience a wage premium,but do they earn a near-native wage in parallel to their near-native educa-tional performance? This research explicitly investigates whether Latinoimmigrant labor market outcomes diverge for those who arrived duringchildhood as opposed to adulthood. In the labor market, are Latino childimmigrants as successful as native-born Latinos or is their experience muchlike adult immigrants? By fine-tuning the generational analysis, thisresearch hopes to shed some light on the specific value of early childhoodU.S. education and experience.

Data and Definitions

Our analysis is based on the Current Population Survey (CPS) collectedby the U.S. Bureau of the Census. Each month the CPS asks the “outgoingrotation groups” of the sample about their earnings on their main job. Onequarter of the sample housing units are in the outgoing rotation group. TheBureau of Labor Statistics has concatenated the monthly CPS outgoing


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rotation group data into annual CPS merged outgoing rotation group(MORG) files. A MORG file is about the sample size of three monthly CPSsor roughly 280,000 persons 16 years of age or older.

1

In order to boostsample size to examine the wages of detailed Latino-origin groups, the 2000and 1999 MORG files are pooled and treated as one cross section.

The primary analytic sample examines men between the ages of 18 to61 years. All workers of non-Hispanic White origin are included. Hispanicworkers of Mexican, Puerto Rican, and Central and South American originare analyzed. These three major Latino-origin groups comprise about 90percent of Latinos (U.S. Bureau of the Census 2001). Cuban workers andLatinos of “other Spanish” origin are omitted due to insufficient samplesize. The sample sizes for non-Hispanic Black workers are insufficient toperform a detailed generational analysis, so only third-generation or highernon-Hispanic Blacks are included. Because our primary focus is to comparethe earnings of Latino workers to White and Black workers, non-Hispanicworkers whose reported race is Asian or Pacific Islander or AmericanIndian were excluded.

Following convention, the first generation includes workers born abroadand is further broken into “decimal generations.” Although persons bornon the island of Puerto Rico have U.S. citizenship, those born on the islandare grouped with the foreign born (see Tienda and Wilson 1991; Wojtkiewiczand Donato 1995; Reimers 2000). In line with the educational researchnoted above, the 1.0 generation refers to individuals who arrived in theUnited States after age thirteen. The 1.5 generation arrived in the UnitedStates between the ages of five and thirteen. The 1.75 generation arrived inthe United States before age five. Ultimately, the validity of these decimalgenerations relative to wage outcomes is an empirical question to be testedhere.

2

Following Trejo’s (1997) work on the intergenerational progress ofMexican-origin workers, second-generation workers are distinguished fromthird and higher generation.

3

By definition, second-generation individuals

1

The National Bureau of Economic Research provides very convenient access to the MORG data inthe CPS Labor Extract files (http://www.nber.org/data/morg.html).

2

Furthermore, language surveys often query on languages learned before starting school in an effortto gauge first versus second language acquisition. Oropesa and Landale (1997) report that the odds ofbeing bilingual versus Spanish monolingual differ substantially across decimal generations, with theodds of bilingualism declining with age—at arrival. Since English language proficiency is an importantdeterminant of immigrant earnings (Chiswick and Miller 2002), it is reasonable to differentiate the firstgeneration by their age at which they entered the United States.

3

Trejo (1997, 2001) excludes immigrants who arrived in the United States before age sixteen, andthus his research does not speak to the characteristics of Mexican immigrants who arrived duringchildhood versus adulthood.

http://www.nber.org/data/morg.html

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were born in the United States, but have at least one parent who was bornoutside the United States.

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Members of the third and higher, or hereafterthe third-plus generation, include all U.S.-born individuals with two U.S.-born parents. No generational definition is without issues, but note that thethird-plus generation may include significant numbers of fourth, fifth, andhigher generations.

Unfortunately, the CPS coding of the Hispanic origin categories combinesCentral Americans with South Americans and does not permit disaggrega-tion. Yet South Americans generally have higher socioeconomic status thanCentral Americans (U.S. Bureau of the Census 2004), and generationalcomparisons within the broad Central/South American category are com-plicated by changing composition between these two origin groups acrossgenerations. Tabulations from the 2002 National Survey of Latinos indicatethat about 60 percent of first-generation Central/South Americans areCentral American, while third-plus–generation Central/South Americansare about 30 percent of Central American origin and so mostly reflective ofSouth Americans. While not ideal, we evaluate this combination whilereporting additional analysis that shed light on the compositional compli-cations for the Central and South American-origin groups.

The dependent variable of interest is hourly earnings. Following conven-tion, this is computed as usual weekly earnings (in $2000) divided by usualweekly hours of work. Self-employed workers are dropped from our analysisdue to the absence of reliable earnings information.

Basic Skill and Wage Patterns

Before turning to wage outcomes, the labor market context and skillcharacteristics of Latinos in the 1990s tell us much about what to expect inthe regression results. Job holding among Latinos expanded considerablybetween 1995 and 2000, especially for immigrant Latinos (Fry and Lowell2002), but there were notable differences by Latino origin. The first datacolumn of Table 1 reports the employment-to-population ratio for all menaged twenty-five to sixty-one (including the self-employed and persons lack-ing earnings information). By the end of the decade, about 89 percent ofWhite men held jobs. Employment among Central/South Americans exceedsthat of Whites, and native-born Mexicans do not trail far behind with

4

Other researchers use alternative definitions of “second generation” (Oropesa and Landale 1997).For example, Card, DiNardo, and Estes (2000) restrict the second-generation to native-born personswhose mother and father were immigrants.

The W

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TABLE 1

C

M

,

S

E

, 1999–2000

Men age 25–61

Employed workers for pay, age 18–61

Fraction in education range

Employment to population ratio

Mean real hourly wage

Less than 7th 7th–12th

High school completion

Some college

Bachelor’s or higher

Experience (in years)

Sample size

MexicansFirst 89.8 10.18 38.1 29.2 21.4 8.0 3.4 19.0 5,038Gen 1.5 90.2 10.87 18.2 37.5 27.4 13.4 3.7 12.4 796Gen 1.75 89.5 10.67 10.2 29.5 36.5 19.9 3.9 10.7 369Second 85.7 13.74 4.3 21.1 35.1 29.6 9.9 14.7 1,613Third and up 85.0 14.04 2.6 18.6 39.9 27.6 11.3 16.9 2,700

Central/South AmericansFirst 89.8 12.64 17.7 21.9 30.2 14.8 15.4 20.06 1,805Gen 1.5 91.6 13.31 7.3 18.0 33.3 30.8 10.7 10.33 261Gen 1.75 87.1 14.61 3.5 15.5 29.2 37.6 14.2 8.02 96Second 89.6 15.04 1.4 13.5 22.9 37.8 24.4 11.09 238Third and up 88.9 14.89 4.3 11.7 26.3 36.9 20.8 15.46 123

Puerto RicansFirst 75.6 12.88 12.0 27.5 30.1 18.5 11.9 24.4 339Gen 1.5 73.2 13.63 4.5 29.4 35.9 18.7 11.4 22.1 147Gen 1.75 75.9 13.93 1.2 36.7 28.6 26.5 7.0 17.8 99Second 81.8 15.05 1.0 16.4 36.1 32.5 14.0 15.2 495Third and up 79.5 14.53 2.9 19.5 38.4 27.9 11.4 12.6 189

WhitesFirst 87.0 20.52 2.8 7.2 23.2 17.4 49.4 19.8 2,886Gen 1.5 88.3 19.03 1.7 9.8 24.2 27.9 36.3 18.3 522Gen 1.75 88.7 20.11 0.3 4.0 27.5 31.1 37.1 17.7 388Second 87.8 20.98 0.2 4.6 24.2 30.0 41.1 19.3 5,273Third and up 88.6 18.49 0.2 7.5 33.1 29.2 30.0 18.6 97,889

Third-gen and up Blacks 77.2 13.98 0.3 10.7 41.5 31.5 16.0 18.3 10,288

S

: Current Population Survey MORG files.

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employment rates over 85 percent. Puerto Rican employment lagged furtherbehind, approaching the Black employment rate.

Clearly, the late 1990s had a very tight labor market, and for the time sincethe 1970s, the real wages of most Black and Hispanic men rose (Council ofEconomic Advisers 1999). About the only workers who did not appear tobenefit from the 1990s expansion were less-educated young Black men (Holzerand Offner 2001). Yet Table 1 reveals large unadjusted wage gaps between themale White and native-born Latino workers in the wage sample. The typicalWhite third- and higher-generation worker is paid about $18.50 per hour.The highest-paid native Latino worker is paid about $15.00 per hour,more than the typical wage paid third- and higher-generation AfricanAmericans but trailing Whites. Native-born Mexican workers are paidsimilar to African Americans.

There appears to be substantial intergenerational progress in the labormarket among Mexicans, Puerto Ricans, and Central/South Americans.

5

There is a fairly smooth progression in the wages from the 1.0 generationto the 1.5 to the 1.75 generation and up to the second generation. While thewages of 1.0-generation Mexicans are the lowest, the wages for generation1.0 Central/South Americans and Puerto Ricans also trail Black wages. Theunadjusted wages suggest that there is little earnings growth between thesecond generation and the third-plus generation (a pattern also apparent forWhites).

The growth in wages between the immigrant generations and the secondgeneration is accompanied by substantial improvements in educationalattainment. For example, only 11 percent of 1.0-generation Mexicans com-plete at least some postsecondary education, but 24 percent of the 1.75generation did so. However, fully 40 percent of the second generation hascompleted at least some college. Although better educated, Puerto Ricansevince a similar pattern. In contrast, the 1.75 generation for both Central/South Americans and Whites are just as likely as the second generation tocomplete some college, falling behind only in bachelor-level education. Infact, all second-generation Latino groups are more likely to complete 4-yearcollege than their decimal generation counterparts. Clearly, Whites overallin any generation do much better than Latinos.

5

Cross-sectional analysis will only generate adequate comparisons if there have not been significantchanges in the characteristics of immigrants over time. Indeed, a substantial body of research found thatthere have been declines in the skill of immigrants, on average, relative to natives since the 1970s (Borjas1999). However, much of the change appears to be due to the changing national origin composition ofU.S. immigration, e.g., the increasing size of Latino or Asian immigrants with little education. Since thefocus of this paper is to compare generations within just Hispanic-origin groups, this suggests that cross-sectional comparisons will not overstate the degree of intergenerational progress.


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An additional important wage-relevant feature of importance is years ofexperience in the labor market. Variation here is as strong as educationalvariation, with all White generations, especially the baseline third-plus, havingmore experience than most all Latino-origin and generation groups. While theLatino 1.0 generations are as experienced as Whites, subsequent generationalgroupings are rather young on average and have notably less labor marketexperience. Indeed, the following analysis reveals that a large portion of theLatino/White wage gaps can be attributed to both differences in education andthe substantially younger, less-experienced composition of the Latino labor force.

Adjusted Wage Gaps

Wage gaps between Latinos and Whites are estimated using a standardhuman capital wage equation. In the basic model specification, only theintercept is allowed to vary between ethnic/generation groups; the coefficientson the regressors are restricted to be the same for all groups. The log wageequation estimated is:

log(

w

i

) =

G

i

α

+

E

i

β

+

P

i

χ

+

R

i

δ

+

T

i

φ

+

ε

i

where

i

refers to the worker and

w

i

is the real hourly wage.

G

i

is a vector oftwenty ethnic/generation dummy variables (five for Mexicans, five for Central/South Americans, five for Puerto Ricans, four for non-Hispanic Whites,and one for third- and higher-generation non-Hispanic Blacks). Third-plus–generation non-Hispanic Whites are the omitted reference group.

E

i

is avector of educational attainment categories: less than seventh-grade educa-tion, seventh-grade education or more and did not complete high school,some college, and bachelor’s degree or more (high school completion beingthe omitted category).

P

i

is a quadratic in potential labor market experience.

R

i

is a vector of dummy variables that control for geographic residence: centralcity status, metro status, nonmetro status, eight dummy variables for the censusregions, and six state dummy variables for residence in California, Texas,New York, Florida, Illinois, and Arizona.

6

Finally, again the MORG filecombines survey data collected in different months, so

T

i

is a vector ofinterview month dummies and a dummy variable for survey year 1999.

ε

Is arandom error term and the other vectors are coefficient vectors to be estimated.

6

The CPS has a significant number of workers for which metropolitan and central city status is notidentified. Thus, the four mutually exclusive categories of type of residence are central city, elsewhere ina metro, nonmetropolitan, and residence status unidentified. The six states are those with the greatestconcentrations of Hispanics.

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Column 1 of Table 2 reports the wage gaps between minority workers andthird- and higher-generation Whites controlling for interview month andgeographic residence. These baseline wage differentials account for differencesin wages across regions due to the cost of living and reflect wage differencesfor workers residing in similar geographic areas.7 Black workers appear to

7 The percentage wage differentials in column 1 also differ from those implicit in Table 1 becausethose are sample weighted, whereas the regressions estimates in Table 2 were unweighted.

TABLE 2

H W D, E G

(1) (2) (3)

MexicansFirst −0.607 (−74.28) −0.623 (−81.95) −0.280 (−34.72)Gen 1.5 −0.563 (−28.90) −0.473 (−26.07) −0.176 (−10.60)Gen 1.75 −0.550 (−19.33) −0.421 (−15.88) −0.177 (−7.35)Second −0.359 (−25.86) −0.256 (−19.82) −0.101 (−8.62)Third and up −0.286 (−26.16) −0.247 (−24.31) −0.111 (−12.01)

Central/South AmericansFirst −0.432 (−33.14) −0.470 (−38.73) −0.263 (−23.50)Gen 1.5 −0.404 (−12.00) −0.263 (−8.38) −0.093 (−3.27)Gen 1.75 −0.325 (−5.87) −0.116 (−2.26) 0.008 (0.17)Second −0.303 (−8.59) −0.157 (4.77) −0.088 (−2.96)Third and up −0.186 (−3.80) −0.145 (−3.19) −0.064 (−1.56)

Puerto RicansFirst −0.368 (−12.43) −0.413 (−14.99) −0.237 (−9.50)Gen 1.5 −0.367 (−8.18) −0.325 (−7.79) −0.165 (4.38)Gen 1.75 −0.312 (−5.72) −0.314 (−6.19) −0.108 (−2.35)Second −0.225 (−9.18) −0.198 (−8.67) −0.069 (−3.34)Third and up −0.258 (−6.54) −0.153 (4.17) −0.017 (−0.51)

Non-Hispanic WhitesFirst −0.003 (−0.33) −0.025 (−2.58) −0.072 (−8.21)Gen 1.5 −0.032 (−1.33) −0.007 (−0.32) −0.016 (−0.78)Gen 1.75 0.050 (1.79) 0.030 (1.17) 0.016 (0.66)Second 0.073 (9.84) 0.070 (10.13) 0.024 (3.86)

Third-gen and up Blacks −0.248 (−42.30) −0.260 (−47.72) −0.180 (−36.33)

Controls forYear/interview month Y Y YGeography Y Y YPotential experience N Y YEducational attainment N N Y

N: t-ratios in parentheses. Dependent variable is the natural logarithm of the hourly wage rate. The emittedethnicity/generation group is third- and higher-generation non-Hispanic White workers. The dummy variablecoefficients reputed above are derived from the baseline regression specification that constrains the coefficients onyear/interview month, geographic indicators, potential experience, and education to be the same across all ethnicity/generation groups.

The Wage Structure of Latino-Origin Groups across Generations / 157

be paid about 25 percent less than third-plus–generation White workers.Native-born Latinos appear to be paid even less; second-generation Mexican,Central and South American, and Puerto Rican workers being paid 36 percent,30 percent, and 23 percent less than White workers, respectively. The gapsbetween immigrant Hispanic workers and White workers are even greater.

Trejo (1997) demonstrated that a significant portion of the native Mexican–White wage gap can be accounted for by the lower human capital thatMexican Americans bring to the labor market. Indeed, the succeedingcolumns of Table 2 show that simple proxies for labor market skill canexplain a substantial portion of the wage gaps between native-bornMexican, Central/South American, and Puerto Rican workers, and theirWhite counterparts. For certain Latino group/generations, the lack ofpotential experience explains a sizable portion of the wage differential.Table 1 shows that the typical third-plus–generation White worker has nearly19 years of potential labor market experience. Certain Latinos are muchyounger. Second-generation Central/South Americans have 11 years ofpotential experience. Third- and higher-generation Puerto Ricans have 13years of potential experience. Adjusting for the youthfulness of these work-ers (column 2 of Table 2) substantially shrinks the measured wage gap.

Column 3 of Table 2 adjusts for the schooling differences between Latinoworkers and their White counterparts. The measured wage gap betweenthird-plus–generation and higher Black workers has declined by a third andis estimated to be about 18 percent after adjusting for basic human capitalmeasures.8 Among native Latinos, the gap between their wages and Whiteworkers shrinks much further and the size of the estimated gap is substan-tially smaller. Among third-plus–generation Central/South Americans andPuerto Ricans, there is no statistically significant wage gap with Whiteworkers. For Mexican American workers, a significant wage gap doesremain on the order of 10 to 11 percent for native-born workers. Thisestimate is virtually identical to estimates generated by alternative method-ologies (Smith 2003), but potential experience and education have succeededin explaining a much larger portion of the unadjusted gap for MexicanAmericans than in the case of African Americans.

An important caveat to note about these results is that the CPS does notallow us to control for English language proficiency. A lack of English

8 This is the same gap found by O’Neill and O’Neill (2005) using similar Census data. However,almost all wage differentials for Blacks and all for Latinos are eliminated when they introduce a test-based measure of cognitive skills (AFQT) using the National Longitudinal Survey of Youth. Thissuggests that wage discrimination may have attenuated in the 1990s (Census/CPS data omit such avariable; see also text discussion on omission of a language measure).

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fluency seems not to be trivial for Central/South American and Mexicannatives. About one in five native Mexican adults does not speak English“very well”; and one in ten native Central/South American adults does notspeak English “very well” (Carliner 2000). It is likely that accounting forEnglish language proficiency would further shrink the measured gapsbetween Latino workers and White workers. Still, the most basic proxies forthe skills that workers bring to the labor market can account for a largeshare of the wage differences between White workers and native Latinoworkers.

Table 2 also demonstrates that there is labor market progress between thesecond generation and third-plus generation for some groups of Latinoworkers. Progress does seem to stall for Mexican Americans.9 But Central/South Americans and Puerto Ricans display some improvement betweenthe second and third-plus generations. Without accounting for education(column 2), the measured wage gaps between second and third-plus–generation Latinos and White workers are fairly similar. Once one accountsfor education, third- and higher-generation Central/South Americans andPuerto Ricans are paid no differently than Whites, but their second-generationcounterparts are.10

9 Our cross-sectional approach is not restricted to comparisons of parental outcomes with those oftheir children. One attempt to create a longitudinal analysis uses multiple cross sections of successivegenerations spaced 25 to 30 years apart (Smith 2003). This seeks to compare fathers at time t with theiroffspring at t + 1, or immigrant (grandfather), second (son), and third generations (grandson). Thisapproach is argued to have generated more optimistic second- to third-generation outcomes than thosereported here. However, there are at least three problems with that multiple–cross-section analysis. First,economic improvements over time have lifted the outcomes of all Hispanic generations producing over-estimates of the gains across generations (Trejo 2001). Second, the third generation includes many othersthan son and grandson. Rather, the third-plus generation, particularly of Mexicans, includes manyfourth-plus–generation individuals whose grandfathers were more likely to be rural, agricultural workersthan succeeding generations (Bean and Tienda 1987). So the third-generation comparison is less thanapt. Finally, and in any event, there is actually little difference between our cross-sectional results andthose of the multiple cross sections of successive generations especially from the Mexican second tothird-plus generations. Smith (2001) estimates adjusted wage gaps by the immigrant’s year of birth.Consider immigrant birth cohorts whose grandsons are still active in the labor market, those born in1900–1904 and thereafter. For all these immigrant birth cohorts, he finds no adjusted wage gains fromthe second generation to the third-plus generation for Mexican Americans.

10 We attempted to get a handle on the difference between Central and South Americans given thatthe estimated wage gaps might simply reflect changing composition and not intergenerational change.It is possible to generate small samples of only the first and second generation using the individual’s andparent’s place of birth. We estimated wage regressions identical to Table 2 (column 3) and found thatfirst-generation South American workers have an estimated wage gap of 22 percent and a statisticallyinsignificant wage gap for second-generation workers. So second-generation, and very likely third-generation, South Americans attain wage parity with Whites. The statistically significant wage gaps forCentral Americans are 29 percent for the first generation and 11 percent for the second generation. Sowhether third- and higher-generation Central Americans attain wage parity remains uncertain.


How similar are the wage outcomes of immigrants that arrived in theUnited States during their childhood and their second-generation counter-parts? Comparing the wages of generation 1.75 and the second generationof Latinos, the wage gaps in column 3 of Table 2 do not provide strongevidence that the decimal generations are similar to the second generation.While among Central/South American workers, immigrants who arrivedduring childhood are paid in similar fashion to second-generation workers,for Mexicans and Puerto Ricans, the decimal generations appear to bedistinct from the second generation in their success in the labor market. ForMexicans, workers who arrived in the United States before 5 years of ageare paid 18 percent less than third- and higher-generation Whites, whereastheir second-generation counterparts are paid 10 percent less than Whites,a statistically significant difference in the wage gaps.

Returns to Skill and Wage Decomposition

The regressions underlying Table 2 constrain the regression coefficients tobe the same for all ethnic groups. We can more directly examine the wagestructure facing Latino workers in comparison to White and Black workersby relaxing this restriction. In the extended regression specification, thereturns to education and potential experience are allowed to vary byethnicity/generation group as well as the intercept. Table 3 presents thereturns to schooling and potential experience facing Mexican, Central/South American, and Puerto Rican workers in comparison to White andBlack workers.

The omitted education group in Table 3 is workers that completed highschool and not any college education. Table 3 indicates that for third-plus–generation non-Hispanic Whites, workers with a college degree earn about48 percent more than otherwise similar high school graduates. The estimatedreturns to education for native-born Latinos are at least as high as the returnsfor third-plus–generation Whites.11 Indeed, the only generation/ethnicitygroup with markedly different returns is the very compressed returns toeducation facing generation 1.0 Mexican workers. Other researchers havealso found that Mexican immigrants face lower returns to education in

11 Using the CPS, Bradbury (2002) did not distinguish between Hispanic generations and origingroups. For all Hispanic workers she estimated that Hispanics receive significantly higher returns toeducation than non-Hispanic Whites, whereas Blacks receive lower returns for all education diplomasexcept advanced degrees in comparison to non-Hispanic Whites.

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F

B

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L

TABLE 3

E R E E, S E, 1999–2000

Education

Experience Experience2

Cumulative returns to experience

Less than 7th 7th−12th

Some college

Bachelor’s or higher 10 years 20 years 30 years

MexicansFirst −0.22 −0.13 0.07 0.32 0.03 −0.0004 0.23 0.37 0.42Gen 1.5 −0.26 −0.15 0.09 0.53 0.04 −0.0006 0.29 0.46 0.49Gen 1.75 −0.40 −0.19 0.17 0.51 0.04 −0.0007 0.33 0.52 0.56Second −0.42 −0.21 0.12 0.60 0.04 −0.0007 0.36 0.58 0.66Third and up −0.38 −0.18 0.12 0.48 0.05 −0.0008 0.38 0.59 0.65

Central/South AmericansFirst −0.28 −0.14 0.13 0.45 0.03 −0.0004 0.21 0.33 0.36Gen 1.5 −0.44 −0.10 0.11 0.45 0.05 −0.0005 0.43 0.76 0.98Gen 1.75 −0.68 −0.22 0.07 0.61 0.01 0.0006 0.15 0.43 0.83Second −0.30 −0.33 −0.03 0.35 0.03 −0.0005 0.25 0.40 0.46Third and up −0.44 −0.46 0.05 0.38 0.03 −0.0005 0.26 0.42 0.48

Puerto RicansFirst −0.34 −0.15 0.22 0.59 0.02 −0.0002 0.20 0.36 0.47Gen 1.5 −0.39 −0.29 0.24 0.55 0.05 −0.0008 0.38 0.60 0.66Gen 1.75 −0.85 −0.17 0.22 0.35 0.03 −0.0003 0.23 0.39 0.49Second −0.30 −0.18 0.25 0.56 0.04 −0.0008 0.36 0.55 0.57Third and up 0.03 −0.01 0.22 0.44 0.07 −0.0017 0.51 0.68 0.52

WhitesFirst −0.29 −0.24 0.13 0.56 0.04 −0.0006 0.31 0.50 0.57Gen 1.5 −0.34 −0.23 0.19 0.54 0.04 −0.0005 0.31 0.52 0.62Gen 1.75 −0.51 −0.32 0.06 0.36 0.07 −0.0015 0.54 0.77 0.70Second −0.41 −0.25 0.06 0.45 0.05 −0.0009 0.42 0.65 0.71Third and up −0.45 −0.21 0.10 0.48 0.05 −0.0008 0.39 0.62 0.68

Third-gen and up Blacks −0.07 −0.21 0.13 0.50 0.03 −0.0005 0.27 0.45 0.52

N: The omitted reference category for the returns to education is high school completion, no college. These estimates are derived from an extended regression specification.The dependent variable is the natural logarithm of the hourly wage rate. Regressors include year/interview month dummies and geographic indicators. The coefficients on theseregressors are restricted to be the same across all ethnicity/generation groups. Standard errors are available from the authors upon request.


comparison to Mexican natives. For example, Padilla and Glick (2000),using the panel study on income dynamics, found that education does notaffect the earnings of Mexican immigrants at all.

Where the wage structure diverges between native Latinos and third-plus–generation Whites is in regard to the returns to potential experience.The experience coefficients suggest that after 30 years, wages have risen byabout 68 percent for third-plus–generation Whites. Native-born Mexicansexperience similar wage growth. However, returns to experience for nativeCentral/South Americans and Puerto Ricans are lower, approximating thelower returns to experience found among Black workers.

How much of the wage gap between minority workers and White workerscan be attributed to a differing wage structure versus differences in thelevels of human capital that workers bring to the labor market? Usingstandard decomposition analysis, it can be shown that the difference in themean hourly wage differential can be split between the differences in thecharacteristics of workers and differences in the returns to those character-istics. Formally,

where the w superscript refers to third- and higher-generation Whites and lrefers to the particular Latino-origin subgroup and g refers to the generation.Overbars denote group specific means. The last four terms on the right-hand side are the differences in the mean characteristics between third- andhigher-generation Whites and the Latino generation group. This decompo-sition weights the difference in the average characteristics using the Whitecoefficients. The first three terms refer to the difference in the estimatedreturns, weighted by the Latino generation’s average characteristic. Thisform of the normalization is what is reported in column 1 of each of thereported decompositions (Tables 4–7). Alternatively we can use the Latinogeneration’s estimated coefficients to weight the difference in the averagecharacteristics. This alternative form is reported under column 2.

Tables 4–7 report the wage decomposition analysis for each minoritygroup in comparison to third- and higher-generation Whites. The first rowreports the total unadjusted log wage differential to be explained. Thetotal wage differential is then split into the pieces due to the differences inthe average characteristics and the total difference due to differences inreturns.

For third- and higher-generation African Americans (Table 7), the totallog wage differential to be explained is 24 percentage points. The returns to

log( ) log( ) ( ) ( ) ( ) ( ) ( ) ( ) ( )

lg lg lg lg lg lg lg

lg lg lgw ww w w w w w

w w w w− = − + − + − + −

+ − + − + −1 1 ´ 2 2 ∏ 5 5 ´ ´ 2∏ ∏ 5 ‰ ‰ 6 ˇ ˇ 3

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TABLE 4

D H W D T-G

N-H W M

TABLE 5

D H W D T-G

N-H W C/S A

First Gen 1.5 Gen 1.75 Second Third and up

(1) (2) (1) (2) (1) (2) (1) (2) (1) (2)

Total log wage differential 0.55 0.50 0.48 0.31 0.26

Attributable to differences in mean characteristicsEducation 0.37 0.21 0.29 0.25 0.23 0.23 0.15 0.17 0.12 0.12Potential experience −0.01 0.00 0.10 0.07 0.14 0.11 0.10 0.10 0.04 0.04Geographic location −0.03 −0.03 −0.04 −0.04 −0.04 −0.04 −0.03 −0.03 −0.01 −0.01Other 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Total attributable to differing characteristics

0.32 0.17 0.35 0.28 0.32 0.30 0.21 0.23 0.15 0.14

Total attributable to differing returns

0.23 0.38 0.15 0.22 0.16 0.18 0.09 0.07 0.11 0.11

N: Results of a standard Oaxaca decomposition of the hourly wage gap. The first column reports the results ofusing the third- and higher-generation non-Hispanic White coefficients to weigh the difference in averagecharacteristics and the Mexican generations average characteristics to weigh the difference in coefficients.Alternatively, the second column reports the results of using the Mexican generation’s coefficients to weigh thedifference in average characteristics and higher-generation non-Hispanic White average characteristics to weight thedifference in coefficients.


(1) (2) (1) (2) (1) (2) (1) (2) (1) (2)


Attributable to differences in mean characteristicsEducation 0.20 0.16 0.15 0.13 0.11 0.14 0.05 0.05 0.07 0.07Potential experience −0.03 −0.02 0.15 0.26 0.21 0.33 0.15 0.11 0.05 0.04Geographic location −0.04 −0.04 −0.04 −0.04 −0.04 −0.04 −0.04 −0.04 −0.02 −0.02Other 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00


0.14 0.11 0.26 0.35 0.28 0.43 0.16 0.13 0.10 0.09


0.24 0.27 0.08 −0.01 −0.02 −0.17 0.08 0.12 0.06 0.06

N: Results of a standard Oaxaca decomposition of the hourly wage gap. The first column reports the results ofusing the third- and higher-generation non-Hispanic White coefficients to weight the difference in averagecharacteristics and the Central/South American generations average characteristics to weight the difference incoefficients. Alternatively, the second column reports the results of using the Central/South American generation’scoefficients to weight the difference in average characteristics and higher-generation non-Hispanic White averagecharacteristics to weight the difference in coefficients.


TABLE 6

D H W D T-G

N-H W P R

TABLE 7

D H W D T H G

N-H W T- H-G B


(1) (2) (1) (2) (1) (2) (1) (2) (1) (2)


Attributable to differences in mean characteristicsEducation 0.19 0.20 0.17 0.21 0.18 0.15 0.10 0.10 0.12 0.08Potential experience −0.06 −0.07 0.03 0.02 0.01 0.01 0.04 0.03 0.11 0.04Geographic location −0.02 −0.02 −0.03 −0.03 −0.04 −0.04 −0.03 −0.03 −0.03 −0.03Other 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00


0.11 0.11 0.17 0.21 0.15 0.12 0.11 0.10 0.20 0.09


0.22 0.22 0.16 0.12 0.11 0.14 0.07 0.08 0.01 0.12

N: Results of a standard Oaxaca decomposition of the hourly wage gap The first column reports the results ofusing the third- and higher-generation non-Hispanic White coefficients to weight the difference in averagecharacteristics and the Puerto Rican generations average characteristics to weight the difference in coefficients.Alternatively, the second column reports the results of using the Puerto Rican generation’s coefficients to weight thedifference in average characteristics and the higher-generation non-Hispanic White average characteristics to weightthe difference in coefficients.

(1) (2)

Total log wage differential 0.24

Attributable to differences in mean characteristicsEducation 0.07 0.07Potential experience −0.01 −0.01Geographic location −0.01 −0.01Other 0.00 0.00

Total attributable to differing characteristics 0.05 0.06

Total attributable to differing returns 0.18 0.18

N: Results of a standard Oaxaca decomposition of the hourly wage gap The first column reports the results ofusing the third- and higher-generation non-Hispanic White coefficients to weight the difference in averagecharacteristics and the third- and higher-generation Black average characteristics to weight the difference incoefficients. Alternatively, the second column reports the results of using the third- and higher-generation Blackcoefficients to weight the difference in average characteristics and higher-generation non-Hispanic White averagecharacteristics to weight the difference in coefficients.

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characteristics are very similar for African Americans and Whites, so it makeslittle difference whether we weight the differences in the mean characteristicsusing the White coefficients or the Black coefficients. Differences in themean characteristics altogether explain about 6 percentage points of the24 percentage point differential, so differences in the stocks of productiveskills that White and Black workers bring to the labor market explains atmost a quarter of the Black–White wage gap.

The situation is much different for second- and third-plus–generationLatino workers. Differences in the mean characteristics between native-bornLatinos and third-plus–generation Whites explain nearly half the wage gapand typically well over half of the wage gap. Consider, for instance, third-plus–generation Puerto Ricans (Table 6). Using the White coefficients toweight the differences in characteristics, 20 percentage points of the total 21percentage-point wage gap can be attributed to differences in education andexperience. Since third-plus generation Puerto Ricans seem to have a lowerreturn to experience, if we use the third-plus generation Puerto Ricanreturns to weight the mean differences in characteristics, about 9 percentagepoints of the 21 percentage point differential can be attributed to differingcharacteristics. Even in this instance, basic proxies for productive skills accountfor much more of the wage gap than in the case of African Americanworkers. The wage structure facing native-born Latino workers is muchcloser to the structure facing White workers than in the case for Blackworkers, so a majority of the wage gaps can be explained by differences inbasic characteristics rather than differences in returns.

Given the simple proxies for skill available in the CPS, it is more difficultto explain the wage gap between generation 1.0 Latino workers and Whites.Take for example Mexican immigrants and Whites. Mexican immigrantsare vastly less educated than Whites. Using the White coefficients to weightthe mean differences, skills can account for 32 percentage points of the55 percentage-point total wage gap. But if we use the Mexican generation1.0 coefficients to weight the mean differences, the portion explained fallsto 17 percentage points. But while it can be readily surmised that Englishfluency differences between Latino 1.0 immigrants and White workersexplains much of these gap differences, the CPS data cannot test thatlikelihood.

What seems very clear is that the wage structure of native Latino workersis similar to that for Whites. The Latino–White wage gap, unlike the Black–White wage gap, is primarily a gap composed of skill differences betweenthe groups. Indeed, most of the Latino wage gap is due to differences in justa few basic skill characteristics, not differences in the returns that employerspay these groups for those skills.


Conclusions

Latinos of all generations earn substantially less than Whites and a littleless than African American workers. Because Latinos are projected to bethe fastest growing segment of the labor force over the next 50 years (Toossi2002), the United States faces the prospect of a vigorously growing low-wagelabor market. The degree to which this scenario will play out depends uponthe degree to which their relative youth, low education, differential pricethat employers pay for their labor, or progress across generations drives theaverage earnings of Latinos. At the least, tomorrow’s Latino workforce willbe older on average and will be comprised of more native-born workers(Toosi 2002; Passel 2004).

Their educational achievements will depend largely on how well Latinoyouths do in school. Substantial resources and attention are devoted toimproving the educational achievement of Latino youth. But can we expectLatino educational gains to move Latinos toward wage parity with Whiteworkers? The estimated returns to education for second-generation andthird-plus–generation Mexican, Puerto Rican, and Central/South Americanworkers are similar to the returns for third- and higher-generation Whiteworkers. Improvements in the quantity and quality of schooling received bynative Latino workers would likely move Latino workers toward the level ofwages paid to White workers.

Hence, the labor market returns to education received by native Latinossuggest that significant resources devoted to equalizing educational oppor-tunities for Latinos will go a long way toward equalizing labor marketoutcomes. With some reservation for Mexican workers, this research indi-cates that labor market intervention per se is not the primary responseto low earnings. Given the widespread benefits of education in terms ofliteracy, political engagement, and health improvements, the merits of thispublic policy emphasis go far beyond an evaluation of the returns toeducation in the labor market.

As for generational progress, the findings of this study indicate that notall Latino-origin groups fare the same. True, all native Latinos earn betterwages than immigrants. But the analyses here mirror research on Mexicansfinding that their progress appears to stall after the second generation.That is, with or without controlling for human capital attributes, third-plus–generation Mexican workers trail their White counterparts to aboutthe same extent as second-generation Mexicans (Grogger and Trejo 2002).However, this characterization does not seem to characterize the labormarket progress of other Latino-origin groups. Controlling for basic humancapital characteristics, there is no statistically significant wage gap between

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third-plus–generation Puerto Rican and Central/South American workersand their White counterparts.12 This third-plus–generation wage convergencewith Whites marks a significant improvement over the second generationand, combined with a growing proportion of native second and third-plus–generation workers, suggests that future generational progress will amelio-rate somewhat earnings differences with Whites.

Finally, this analysis of the wage outcomes of immigrant decimal gener-ations finds little support for the expectation that arrival in childhoodconfers a clear advantage, at least as far as the labor market is concerned.13

Wage outcomes for Latino immigrants who arrived early in childhoodsignificantly trail their native counterparts. This is somewhat surprisingbecause a substantive body of research indicates that child immigrants(generations 1.50 and 1.75) actually do as well, or even better, than native-born Latinos in terms of educational performance and grade completion.It is a mystery why these child immigrants should perform equally well inschool, but fall behind natives in their earnings as adults.

As this discrepancy has not been noted previously, and because thisresearch finds little evidence of differentials in returns to skills by genera-tion, there is now a question as to how these different strands of researchcan be reconciled.14 On the one hand, the CPS data shown here suggest thatthe decimal generations have lower school completion rates than the secondgeneration, which suggests survey bias in either the CPS or the educationalsamples. On the other hand, it may be that, even if they achieve good marksin school, the decimal generations still lack the cultural skills and experienceintrinsic to native birth with the result that they earn less when they reachadulthood. It would be valuable to have a handle on what is driving these

12 The findings here indicate that the lower average earnings of first- and second-generation Central/South Americans in particular have much to do with their young average age. As these populations age,therefore, their relative earnings will improve without any change in policy (third-generation CentralAmericans may be an exception; see footnote 10). Of course, lower average education will still translateinto a lower earnings profile for these Latinos 10, 20, or even 30 years from now.

13 These findings do not, strictly speaking, contradict Friedberg’s (1991) findings. These findings, likehers, suggest a linear decrease in wages by age of arrival. Yet, the decimal generations created here, inparallel to the educational literature, shows that there is no near-native outcome in terms of wages.

14 This also undermines the inference that there is a unique immigrant study and work ethic thaterodes by the second generation. Certainly, the findings here indicate that the immigrant parents ofsecond generation do not face barriers to success over and above their disadvantageous lack of educa-tion. So, there appears to be little basis for the claim that the second generation perceives widespreaddiscrimination against their parents and therefore has cause to “give up” in school. And if Latino childimmigrants are in fact not doing as well in the labor market as the second generation, there is noinferential basis for the claim that immigrant youth forge ahead confidently oblivious of barriers toprogress. Rather, it appears that child arrivals face special labor market challenges that their nativecounterparts are better able to surmount, perhaps because the second generation has not “given up” atleast on the labor market.


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the wage structure of latino-origin groups across generations

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